Question

Five years ago, Alicia invested $10,000 at 5% interest. How much less money would she have today if she had invested the money at 4% instead of 5%? Interest is compounded annually.

Answer 1

Answer:

$596.29 less

Explanation:

A = P(1+r)^n

P = $10,000

n = 5 years

If she invested at 5%, r = 5% = 0.05

A = 10,000(1+0.05)^5 = 10,000 × 1.05^5 = $12762.82

If she invested at 4%, r = 4% = 0.05

A = 10,000(1+0.04)^5 = 10,000 × 1.04^5 = $12166.53

Amount of money she would have less if she invested at 4% instead of 5% = $12762.82 - $12166.53 = $596.29